Great blog posts about macroeconomics

Loans Leave Students in the Dust

There is $1.1 trillion of outstanding student loans in the US economy. Only ten years ago, that number was $300 billion. Skeptics try to mitigate the issue of student debt by comparing it to the amount of mortgages which is over $8 trillion. However, student loans are radically different from mortgages. People of all ages can take out a mortgage and while anyone can attend a university, the vast majority of that $1.1 trillion is concentrated in 20 and 30 year olds. Another important caveat of student loans is that they do not disappear; they cannot be cleared by bankruptcy.

By starting their adult lives with tens of thousands of dollars in debt, young adults have a slow start when it comes to entering the economy. They cannot contribute as much in terms of buying cars and homes because of the debt they have incurred by attending college. Prior to the recession, 33% of young adults also had mortgages. That number has dropped down to just 22%. Similarly, before the recession, nearly 38% of 25 year olds with student loans also took out car loans. Current data show that number had decreased to 31%.

A recent Pew study looked at wealth accumulation across college educated and non-college educated adults with and without student loans. As indicated by the data, the group that was the worst off was composed of young adults who had accrued student loans but never finished college. Surprisingly, the people who graduated college with college loans had less wealth accumulation by the time they hit 40 than people with neither a degree nor student debt. It is important to note that college graduates normally outpace high school graduates in earnings when looking at the long run.

The rising levels of student debt suggest that young adults have trouble initiating their “grown-up” life. Young adults are more likely to live at home for a few years after graduating and less likely to own a car. The effects of student loans are still hurting people even at the age of 40. This leads teenagers on the brink of graduating high school ask the even more pertinent question: Is college worth it?

5 thoughts on “Loans Leave Students in the Dust”

The real disaster is when either students accumulate student debt without getting a degree and the higher wages that come with that degree or when students accumulate the student debt at an institution that doesn’t provide the skills that lead to better jobs.

A Holy Cross education is probably a better investment for most students than many schools since our graduation rate is very high and the prestige of the degree leads to strong job prospects. That being said, there is no doubt the debt can be oppressive.

Additionally we need to think about the new role that internships play in this situation. In order to get a job to start paying those debts you’ll probably need to have taken on a summer of a potentially *unpaid internship. That’s a whole summer of money that could be put towards paying off those loans right away.

It seems a case could be made for the government to take a more active role in correcting this problem. There are positive externalities associated with having a well-educated populace and the human capital obtained from higher education increases our economy’s productive capability, spurring economic growth that benefits us all. Studies have shown that when the level of education in an economy increases, wages increase for all workers regardless of their level of education. Therefore, everybody benefits when the populace is well-educated. For this reason, making sure education is attainable and affordable should be a national priority. The alarming trend highlighted by this post, with debt-saddled students unable to reap the rewards of their hard work in the form of greater wealth accumulation, will hinder that goal if it continues unchecked.